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Monday, 11 June 2007

Eye on Congo

Today's BBC report that our brothers to the north are planning to review their 60 mining deals is likely to give a psychological push to those pushing for the same in our nation.

I caution that perhaps our situation is slightly different - not least because DRC are starting from a bleaker economic and reputational position but also as noted in the report, DRC's case is unique in terms of "war and corruption" being the main reasons for the bad deals. This is echoed by the Carter Center assessment: "The tragedy of the many tragedies in the Congo was that the people woke up after years of war and found that the family wealth had been given away, or sold off, or at least as far as people knew, it seemed to have just flitted away."

13 comments:

  1. Isn't Russia doing the same? Shell lost its oilfields and BP is equally in danger of losing its fields in that country. This is simply because the Russians have realised that they actually lost out in the manner state enterprises were sold after the collapse of the USSR. The Congolese are right. Similarly, the Zambian government should not just be happy that the mines have declared some K35 Billion in royalties. Revising the agreements is what is needed.

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  2. Gershom,

    Absolutely right. By rights, Africans do not need to be poor. It is a choice, and one made by their governments and the multinational corporations that mine their products.

    Either the money goes to the state and works for the people, or it goes to make a few corporations even richer.

    The total amount of money flowing out of Africa dwars all the flow of aid several times over.

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  3. The good news is that the mine worker wages and the mineral tax were raised this year in Zambia.

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  4. Major strikes are anticipated at copper production facilities in Chile and Mexico unless changes are made in labour contracts, perhaps as early as Friday:

    http://africa.reuters.com/metals/news/usnBAN240248.html

    The more renegotiations going on simultaneously, the more pressure is put on copper suppliers by end-users. Are Zambian miners prepared to take advantage of this window of opportunity to improve their own circumstance?

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  5. Well apparently "renegotiation" won't come any time soon....

    http://www.mineweb.net/mineweb/view/mineweb/en/page66?oid=22052&sn=Detail

    "Hailing miners' contributions to national coffers as "positive", Magande said the state started a process of conducting tax audits-covering company income tax, value added tax, mineral royalty and pay as you earn-to verify the profits being made by investors in the sector.

    This, according to a finance ministry official who sought anonymity, implies that while the state realised that renegotiating development agreements posed serious legal hurdles, increasing tax rates for the sector would be a better alternative."


    The same article says George Kunda believes the mining agreements are "above the law" lol!

    The problem with the Russia, Venezuela, DRC et al examples is that these are hardly templates we want to follow....these are not shining examples. DRC aside, these are autocratic regimes whose political institutions are far too weak to deliver the right levels of growth.

    What I am learning I think is that the best way to do deliver is not through the pocket. Its through the law. For that reason we need to be cautious not to look like we are not a nation of "laws".

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  6. Cho,

    The same article says George Kunda believes the mining agreements are "above the law" lol!

    That is part of the problem. Why are these government stooges so adament that there is nothing that is wrong with these agreements, when everyone with an ounce of sense can see that Zambia is being ripped off?

    Are they trying to please Mwanawasa? Or do they indeed have a financial stake in these agreements? Have they been paid by the corporations?

    Because if they have, that would seriously undermine the legal standing of these agreements, and renegotiation would not even be necessary.

    They can simply be declared null and void by a court of law.

    So if anyone has any info, even gossip, on who was bought off, please say so.

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  7. We probably need a Public Inquiry into how the Mining Deals where set up and to draw lessons for the future.

    Similar to what the congelese are doing but much more robust.

    What I like about the paper you gave us to read on land reform is the comparison to how Botswana does things. They set up commission. They investigate things and its all very independent and they allow submissions from everyone home and abroad. Our system of Government is the opposite. Very secretive. No White Papers and so forth.

    We need more open government..mwe!

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  8. Cho,

    What would your ideal mining contract look like?

    - 50/50 profit split
    - 100% of profits to the state
    - a stiff windfall tax

    People call it 'socialist', but in most countries in the world, natural resources are owned by the state. Including by the Bush administration's close friends, the Saudis. They don't care, as long as they are making money.

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  9. At the moment I am leaning towards the 50% nominal tax, similar to what the United Nations told us to do from the beginning. See the new blog here.

    I am convinced that the repossession of the mines is not an option. We need to generate confidence in private property. It is what inspires entrepreneurial activity and innovation. Ownership would send the wrong message. If the copper prices dipped who knows what may happen? What we can do though is that for future mines, we can try and seek a model that encourages Zambians to be share holders (not Government) and also take forward my social investment model.

    Interested to hear your thoughts on Sophia's paper as well :)

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  10. If the copper prices dipped who knows what may happen?

    Then it will be as inconsequential to the Zambian economy as when mining prices turn up.

    I don't see the mines as merely a vehicle for creating business confidence, without them returning most of their profits to the state or most expenditures to the Zambian economy.

    And everyone else in the business world would more than understand. And a repossession of the mines or just the minerals could go hand in hand with a written agreement to not nationalise any other industries. With a little luck it could be written into the constitution.

    Zambia's minerals are just different. They are different than anything else, because they are the lifeblood and birthright of the people and the economy.

    Which president has the right to visit massive loans on the Zambian people, to be paid off by future generations, while not using the hundreds of millions (over the years, billions) from the mines?

    That makes no sense at all, and it has nothing to do with business confidence. In fact, businesses from other sectors will applaud this move, especially when they find out this means they will be paying much lower taxes.

    So I would not be concerned about business confidence at all.

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  11. "Then it will be as inconsequential to the Zambian economy as when mining prices turn up."

    I think the point I was trying to make was more about how much risk we are taking on.

    You have addressed this point separately actually in terms of possibility of locking in pricing.

    What ultimately this discussion comes down to is clarity on the ownership model and the checks and balances. A truly independent company working for the people and giving the cash to the Government could just probably deliver as much as a private company.

    For me what is key is to ensure that whatever structure people chose has the right incentives to deliver. It should also carry minimal risk to tax payers.

    "Zambia's minerals are just different. They are different than anything else, because they are the lifeblood and birthright of the people and the economy."

    Minerals are just a resource like any other. Its a valuable resource but so is the air we breath or the water we drink.

    The key is to ensure that we use these valuable resources to lift our poor out of poverty :)

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  12. The difficulty with locking in prices is that one locks out the highs along with the lows. Getting a guarantee from importers to pay $3 even if the market slips below that also means that they don't have to pay $4 even if everyone else is. It would be a tragedy to go to all the trouble of nationalizing the mines in order to secure the profits therefrom, only to wind up giving 70% of it away when demand drives copper up to $10. Reaping the rewards means accepting the risks, locking in prices gives away the upside, which is why optimistic importers and middlemen will happiy allow you to do so.

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  13. I agree with Yakima.

    The general point is that locking in price has a cost - infact in a 100% ownership model it could work like a self imposed tax :(

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